Market Analysis

The dollar weakened today following a slight increase in risk appetite, though it maintained tight ranges against other currencies ahead of key inflation data from major economies later this week, which markets are watching for guidance on global interest rate trends.

Currency movements were relatively subdued in early Asian trading after a quiet overnight session due to holidays in Britain and the United States. However, the overall sentiment was positive, with global shares firming.

The euro edged up slightly to $1.0860 (RM5.11) despite dovish remarks from European Central Bank (ECB) policymakers on Monday and data showing German business morale stagnated in May.

German inflation data, due on Wednesday, and the broader eurozone inflation reading on Friday will be scrutinized for confirmation of an anticipated ECB rate cut next week, as well as indications of how soon further easing might follow.

“The ECB is preparing for rate cuts next week, but what happens beyond that is crucial, and the lack of guidance from ECB speakers is significant in that regard,” said Rodrigo Catril, senior FX strategist at National Australia Bank (NAB). “Inflation dynamics will set the tone for future expectations.”

The British pound remained near a two-month high, last trading at $1.2774, while the New Zealand dollar inched up nearly 0.1 percent to $0.6155, its strongest level since mid-March.

In Australia, the Aussie dollar edged 0.03 percent higher to $0.6657, with the country's monthly consumer price index data also due on Wednesday.

All this data, however, will be secondary to the main market focus on Friday when the U.S. core personal consumption expenditures (PCE) price index report is released – the Federal Reserve's preferred inflation measure. Expectations are for it to remain steady on a monthly basis.

The outlook for U.S. interest rates has been a dominant driver of currency movements in recent years. Recent data from the world's largest economy has been mixed, affecting policymakers' confidence in the pace and scale of expected rate cuts this year.

“The market is priced for a benign number, and it needs to be delivered for current Fed cut expectations to be sustained,” said NAB's Catril. “Any upside surprise could lead to a significant reaction, with U.S. yields rising and the dollar strengthening.”

Against a basket of currencies, the dollar dipped 0.01 percent to 104.55.

Meanwhile, the yen hovered near 157 per dollar, last trading at 156.87 per dollar, but was on track for its first monthly gain of 2024, aided by suspected intervention from Japanese authorities towards the end of April and early May.

Tokyo's inflation data, a leading indicator of nationwide figures, is also due on Friday and could offer further clues on the timing of future rate hikes from the Bank of Japan (BoJ).

BoJ Governor Kazuo Ueda stated on Monday that the central bank will proceed cautiously with inflation-targeting frameworks, noting that some challenges are "uniquely difficult" for Japan after years of ultra-easy monetary policy.

In cryptocurrencies, Bitcoin eased 0.47 percent to $69,255, while Ether fell 0.2 percent to $3,882.20.

Paraphrasing text from "Reuters" all rights reserved by the original author.